COMMISSIONER OF INCOME TAX vs. BOMBAY MINERAL SUPPLY CO.(P) LTD.

ITR/178/1995HC GujaratGJHC24022501199522 January 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE3 pages
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What were the facts?

The Income Tax Appellate Tribunal (ITAT) referred a question of law to the High Court of Gujarat concerning the allowance of depreciation. The assessee, Bombay Mineral Supply Co. (P) Ltd., was allowed depreciation by the CIT(A) without deducting the subsidy amount from the cost of assets. The Revenue appealed this decision to the ITAT, which dismissed the appeal, upholding the CIT(A)'s order. The ITAT relied on the High Court's previous decision in CIT v. Grace Paper Industries Pvt. Limited. The assessment year(s) are not explicitly stated, nor is the specific amount in dispute. The matter reached the High Court via a reference under Section 256(1) of the Income Tax Act, 1961.

What did the High Court hold?

The High Court held that the Appellate Tribunal was correct in directing the Assessing Officer to allow depreciation without deducting the subsidy amount from the cost of the assets. The Court reasoned that the subsidy, as held by the Supreme Court in CIT v. P.J. Chemicals Ltd., is an incentive and does not partake of the character of a payment intended to meet the 'actual cost' of the asset. The Supreme Court's decision agreed with the view taken by the Gujarat High Court in Grace Paper Industries Pvt. Ltd., which was specifically referred to. Therefore, the subsidy does not form part of the actual cost of the asset within the meaning of Section 43 of the Act. The question referred to the High Court was answered in the affirmative, in favour of the assessee and against the Revenue. The reference was disposed of accordingly.

What were the issues?

The question before the High Court was: "Whether, the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow depreciation without deducting the amount of subsidy from the cost of the assets?" This is a question of law and mixed fact and law, turning on the interpretation of Section 43(1) of the Income Tax Act, 1961. The Revenue contended that the Tribunal was wrong in allowing depreciation without deducting the subsidy amount from the cost of assets. The assessee, through the CIT(A) and ITAT's orders, argued that the subsidy should not be deducted from the cost of assets for depreciation purposes. The Tribunal relied on the High Court's decision in CIT v. Grace Paper Industries Pvt. Limited, and the Supreme Court's decision in CIT v. P.J. Chemicals Ltd. was also cited as supporting the assessee's position.

Which sections of the Income-tax Act were involved?

Section 43(1),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 178 of 1995

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE

============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

The order continues below.

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